1. What the calculation is based on
Three principles apply to all procurements. The calculation rests on the information available to the authority about the subject matter. Not on market prices generally, but on what the authority knows about this procurement.
The calculation is made excluding VAT, as are the thresholds themselves. Calculating with VAT is a typical error that pushes a procurement artificially into a heavier procedure.
The calculation is made for the procurement as a whole, not for an individual contract, where the procurement consists of lots. Splitting into lots does not change the basis.
Determining the estimated value of a construction contract is separately regulated in the law, and its precise content must be taken from the text. The rule differs from the one for services.
2. What belongs in the calculation
Three elements whose omission is a typical error. They belong in the calculation.
| Element | Included | Why it is forgotten |
|---|---|---|
| All works relating to the subject matter, including later orders under the same contract | yes | only the first phase is considered |
| Options and possibilities of extension | yes, where provided for | treated as contingent |
| Materials or equipment supplied by the authority | yes, where part of the subject matter | nothing is paid to the contractor |
The third element is the one most often forgotten in construction, for instance where the client supplies part of the materials. The rule is simple and worth remembering: what belongs in the calculation is what the authority obtains as a result of the procurement, not only what it pays the contractor for.
3. Division into lots
This is the most sensitive point in the whole calculation. It concerns division into lots.
The Public Procurement Act separately regulates the division of a procurement into lots within one procedure. Division into lots is not prohibited, and it is often desirable, because it opens the procurement to smaller tenderers and improves competition.
What is prohibited is division for the purpose of avoiding the application of the law, that is splitting a procurement so that each lot falls below a threshold. The difference lies in intention and in effect, and both are assessed after the fact.
The practical test is the functional whole test: do the lots form a functional whole, and would it be natural to order them together? If they do, the value is calculated together.
| Example | Functional whole | Conclusion |
|---|---|---|
| Façade and roof of one building, same programme | yes | calculate the value as a whole |
| The same type of work in five separate buildings at different sites | depends, assess separately | requires justification |
| Construction work followed by multi year maintenance | generally yes, where provided for | account for it as an option |
Where the answer is yes, the value must be calculated as a whole, however many lots the procurement is divided into. The division remains permitted, but the procedure is chosen on the value of the whole.
4. Why the calculation must be documented
Three reasons, all practical. The calculation is the basis for the choice of procedure, and therefore a procedural decision, not budget work.
The decision is reviewable, including in challenge proceedings.
Reasoning recalled after the fact is weaker than reasoning written down, and the date it was produced is usually visible. The reasoning should be recorded at once.
What must be documented is the basis, not only the result: on what data the calculation rested and when. This is the same principle that applies to any reviewable estimate, and it also protects the authority's own staff if the procurement is later examined.
5. What to do near a threshold
Three steps, the third of which looks expensive and rarely is. The third is documentation.
Calculate more carefully, because a few percent changes the type of procedure. €98,000 and €102,000 are two different procedures from September.
Document the basis particularly precisely, because borderline cases are exactly what gets challenged. The document is the later defence.
Consider using the higher regime voluntarily where the line is very close. It looks expensive, but it removes the risk of challenge, which costs more than a longer procedure. A challenge suspends a procurement; a longer procedure only stretches it.
In summary, and four practical rules
The estimated value is calculated on the information available to the authority, excluding VAT, and for the procurement as a whole. What belongs in it is everything the authority obtains as a result, including options and materials it supplies itself, not only what it pays for. Division into lots is permitted, division to avoid a threshold is not, and the functional whole test separates them.
Four rules: calculate excluding VAT, as the thresholds are. Account for options and materials supplied by the authority. Assess division into lots with the functional whole test. Document the basis of the calculation, not only the result.
This article serves professional orientation at the date of checking. It does not replace the Public Procurement Act or information published by the Ministry of Finance.